Sylvie Willis
BMO, or the Bank of Montreal, has been criticized for its investments in fossil fuels, particularly in the oil and gas industry. Despite attempts to position itself as a climate-conscious investor, BMO has faced scrutiny for its significant holdings in fossil fuel firms and its financing of extreme oil projects. While the bank has made commitments to net-zero and reducing emissions, there are concerns about the lack of transparency in its climate transition plan and the pace of change. BMO's shareholder proposal for fossil fuel divestment was defeated, with the bank arguing that a balance must be struck between current energy needs and a transition to a lower-carbon economy.
| Characteristics | Values |
|---|---|
| Fossil Fuel Financing | C$56 billion between 2016 and 2018 |
| Fossil Fuel Financing (outside of Canada) | Expected to be phased out by 2030 |
| Oil and Gas Loans | C$16.3 billion as of March 2016 |
| Energy Loans from Deutsche Bank | $3 billion in 2018 |
| Arctic Oil Sources Investment | US$199 million |
| Grade from CDP | Poor |
| Fossil Fuel Finance Report Card Grade | D- |
| Upstream Oil and Gas Portfolio Emissions Reduction | Nearly 50% decline from 2020 to 2021 |
| Absolute Interim Emissions Reduction Target | Set for Scope 3 |
| Impact Investment Fund | Increased by $100 million to $350 million |
| Sustainable Finance Framework | Under review and update |
| Energy Equity Category Fossil Fuel Involvement | 100% |
| Morningstar Sustainability Rating | 3 globes |
| <EOS_TOKEN> |
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What You'll Learn
BMO's fossil fuel financing
BMO, or the Bank of Montreal, has been criticised for its investments in fossil fuels. Notably, BMO received a D– on the 2018 Fossil Fuel Finance Report Card. It was listed as one of the "biggest backsliders" on extreme oil investment, having increased its financing by $778 million between 2016 and 2017. In the same three-year period, BMO invested US$199 million in Arctic oil sources. The bank also acquired $3 billion in energy loans from Deutsche Bank in 2018, adding to its already substantial holdings in the oil and gas industry. As of March 2016, BMO held C$16.3 billion in oil and gas loans.
In response to these criticisms, BMO has emphasised its spending on "climate change initiatives", including investments in renewable energy sources. The bank has also stated that it is working with its oil and gas clients on a case-by-case basis to navigate the transition to a lower-carbon economy.
Despite these efforts, BMO has been accused of failing to acknowledge the climate risk associated with its investments. The bank has also faced calls for greater disclosure regarding its climate transition plan and net-zero commitments. While BMO has reported a decline in its absolute emissions for its upstream oil and gas portfolio, this has been attributed to accounting changes rather than actual emissions reductions.
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Oil and gas loans
In recent years, there has been a growing trend among banks to increase their lending to the oil and gas sector. For example, Canadian banks, including the Bank of Montreal (BMO), have expanded their oil and gas loan books faster than total lending. In 2018, BMO acquired $3 billion in energy loans from Deutsche Bank, contributing to its significant fossil fuel financing between 2016 and 2018, totalling C$56 billion.
The Bank of Montreal's approach to fossil fuel investments has been a topic of discussion among its shareholders. Despite calls for divestment, the bank's CEO, Darryl White, asserted that divestment from the fossil fuel industry is not a "productive solution" to climate concerns and collapsing energy prices. Instead, BMO is choosing to work with oil and gas clients on a case-by-case basis, navigating the transition to a lower-carbon economy while considering current energy needs and socio-economic impacts.
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Climate transition plan
In March 2020, the Bank of Montreal (BMO) stated that divesting from the fossil fuel industry was not a productive solution to climate concerns and collapsing energy prices. BMO's chief executive, Darryl White, reassured investors that the bank was working with oil and gas clients on a case-by-case basis to navigate the transition to a lower-carbon economy. BMO's approach considers the socio-economic impacts and current energy needs while addressing future environmental challenges.
However, BMO has faced criticism from shareholders for its significant investments in the fossil fuel industry, totalling C$56 billion between 2016 and 2018. Despite this, BMO's board defeated a proposal calling for an assessment of the incongruities between its sustainability goals and fossil fuel financing.
The call for a transition away from fossil fuels has gained momentum, as evidenced by the discussions at the 28th UN Climate Change Conference (COP28). Global leaders and organisations have emphasised the need to phase out fossil fuels, triple renewable energy capacity, and improve energy efficiency. The conference highlighted the urgency of addressing human-induced climate change, with global carbon dioxide emissions, largely from fossil fuels, reaching record highs in 2021-2022.
To achieve a climate-safe world, governments and financial institutions must align their policies and investments with the commitments made at COP28 and the Paris Agreement. This includes reducing global emissions by 43% by 2030 and limiting global warming to 1.5 degrees Celsius. While there is a recognition that the transition away from fossil fuels will be challenging, particularly for developing countries, it is crucial to provide robust financial support and equitable solutions to ensure a successful energy transition.
A critical aspect of the climate transition plan is the need for ambitious reductions in fossil fuel production and investments in renewable energy sources. Governments and financial institutions must work together to accelerate the adoption of clean energy technologies and support countries with limited resources in their transition process. By doing so, we can address the root cause of climate change and build a sustainable future for both people and the planet.
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Emissions and climate risk
BMO has been criticised for its investments in fossil fuels, particularly in light of its stated sustainability goals. The bank has invested in extreme oil, including $199 million in Arctic oil sources between 2016 and 2018. It has also acquired billions of dollars in energy loans from Deutsche Bank and holds significant shares in large Canadian and international fossil fuel firms. BMO's renewable portfolios are much smaller in comparison, with the bank holding C$16.3 billion in oil and gas loans as of March 2016.
BMO's ESG risk exposure is comparable to its peers in the Energy Sector Equity category, earning an average Morningstar Sustainability Rating of 3 globes. The BMO Equal Weight Oil & Gas ETF does not have an ESG-focused mandate, and its high carbon risk exposure suggests the portfolio will fare poorly in the transition to a low-carbon economy. The fund has 100% involvement in fossil fuels, which is high compared to its peers.
BMO has made some progress towards net-zero emissions, with a nearly 50% decline in absolute emissions for its upstream oil and gas portfolio between 2020 and 2021. However, BMO has been criticised for its lack of transparency in disclosing its climate transition plan and how it evaluates client progress towards net zero. The bank has also never publicly acknowledged climate risk to its assets.
In 2020, BMO's CEO stated that divesting from the fossil fuel industry was not a productive solution to climate concerns, instead choosing to work with oil and gas clients on a case-by-case basis. BMO is the only one of Canada's five largest banks to commit to some level of fossil fuel phase-out, with a target date of 2030. The bank has also increased its Impact Investment Fund by $100 million, although this is much lower than its "sustainable finance" goal of $300 billion by 2025.
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Sustainable finance
BMO, or the Bank of Montreal, has been criticised for its investments in the fossil fuel industry and its failure to acknowledge climate risk. Despite positioning itself as a climate-conscious investor, BMO has significant holdings in oil and gas and has been criticised for its high carbon risk exposure. In 2020, the bank's CEO stated that divesting from the fossil fuel industry was not a productive solution to climate concerns, and the bank has continued to work with oil and gas clients.
However, BMO has also made some progress towards sustainability. It has committed to phasing out fossil fuel financing and corporate banking outside of Canada by 2030 and has increased its Impact Investment Fund to $350 million. Additionally, BMO has reported a decline in its absolute emissions for its upstream oil and gas portfolio and has released a 2022 Climate Report and Sustainability Report, indicating its willingness to engage with stakeholders on sustainability issues.
To further its commitment to sustainable finance, BMO should continue to reduce its exposure to fossil fuels and increase its investments in renewable energy sources. It should also enhance transparency and disclosure around its climate transition plan and provide clear metrics for measuring the success of its sustainability initiatives. By doing so, BMO can better align its financial activities with sustainable development goals and address the concerns of its stakeholders.
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Frequently asked questions
Yes, BMO has been criticized for its investments in fossil fuels and its refusal to divest from the industry.
BMO's CEO has stated that divesting from the fossil fuel industry is not a productive solution to climate concerns. The bank plans to work with oil and gas clients on a case-by-case basis during the transition to a lower-carbon economy.
Yes, BMO has made some progress towards net-zero commitments. The bank has reported a decline in absolute emissions for its upstream oil and gas portfolio and has committed to phasing out fossil fuel financing and corporate banking outside of Canada by 2030.
BMO is the only one of Canada's five largest banks to commit to some level of fossil fuel phase-out. However, it has been criticized for its high carbon risk exposure and lack of transparency in evaluating client progress towards net-zero goals.
BMO emphasizes its spending on climate change initiatives and has increased its Impact Investment Fund. However, its renewable portfolios are relatively small compared to its holdings in oil and gas, and it has been cited as a "laggard" for failing to acknowledge climate risk.
